Diagnostics for strategic decisions

OMEGA Int. J. ofMgmt Sci., Vol. 21, No. 4, pp. 411-423, 1993 0305-0483/93 $6.00 + 0.00 Printed in Great Britain. All rights reserved Copyright (c~ 1993 Pergamon Press Ltd

Diagnostics for Strategic Decisions

PC N U T T

The Ohio State University, Columbus, Ohio, USA

(Received July 1992; in revised form January 1993)

Decisiem were analyzed to identify how diagnostics and types of direction influence the success of decision making. Diagnostics compare performance to norms, creating quantitative or qualitative performance gaps, or make impressionistic observations. Directions were set as an idea, problem, target or refraining. Decision adoption rates, decimon value, and dmeliuem were used to determine the success of these diagnostics and direction setting types. Refraining was found to be the most successful type of direction but was seldom used by decision makers. Targets were also quite successful. Directions based on problems and ideas were the least successful but these tactics were used far more often than targets or refraining. The diagnostics applied by decision makers also influenced decision success, with quantitative performance gaps producing the best results. Decision makers using an idea direction prefer qualitative diagnostics, although quantitative diagnostics were more successful. Problem directions were somewhat more successful with qualitative diagnostics, but were very inefficient. Target directions were successful only with quantitative diagnostics. Unlike the other types of directions, refraining was very successful when used with each diagnostic.

Key words--decision making/process, strategy

INTRODUCTION

To INITIATE a decision making effort, claims by stakeholders calling for action are interpreted using diagnostics to suggest directions that guide decision making. The importance of these early, formative, steps stems from the pivotal role that directions play in determining what will be considered and excluded from managerial attention as options are developed.

This research attempts to identify, describe and assess how decision makers apply diagnostics to stakeholder claims that they recognize to set directions that guide decision making. Every experienced manager has confronted countless decisions and must have devised ways to make diagnoses and establish directions [20, 38]. By examining and codifying practice both desirable and questionable tactics should emerge. Desir- able approaches can be emulated and questionable tactics avoided, thereby improving practice and learning from practice [38, 39].

This research differs from the typical study of decision making because it attempts to uncover

steps in a process and to measure the consequences associated with these steps. This calls for a research approach that combines qualitative and quantitative methods. Qualitative methods draw on phenomenology to uncover the essence of a decision maker's experience and hermeneutics to identify conditions under which action takes place [34]. Quantitative methods apply inferential statistics to link consequences to the steps taken.

To discover how decision making is initiated, 177 cases describing organizational decisions were profiled to identify the steps taken, using qualitative methods. Steps that appear repeatedly in the cases were identified and classified. To measure success, the adoption, value and timeliness of each decision was determined. Statistical techniques were used to determine how diagnostics and directions influence these indicators of success. This analytical format provides an assessment of the main effects and interaction effects, which offer qualifications that suggest when diagnostics and directions were used and with what record of SUCCESS.

411

412 Nutt--Diagnostics for Strategic Decisions

INITIATING DECISION MAKING

Decision making begins when an organizational decision maker attempts to interpret the claims of stakeholders and ends when a direction has been established to guide the search for alternatives [32]. In recent years, a number of research efforts have considered how decision making is initiated. Information processing research [16, 28] carries out experiments dealing with problem solving behavior, in which both learning and J'aemory have an important role. Pertinent steps include the encoding, rep- resentation, and organization of stimuli (claims). Limited memory capacity makes encoding selective, dependent on claims with features that seem to have salience [42]. Vivid claims that agree with or confirm prior knowledge get interpreted [14], others are ignored. Decision makers seem to locate salient stakeholder claims along a continuum that runs from gain to loss. The gain/loss discrimination produces the motivation to act [10, 11].

Researchers drawing on this type of research find that stakeholder claims are interpreted using performance gaps [e.g. 6, 9, 23, 33]. A claim (stimulus) is recognized when a quantitative performance measure (e.g. market share or revenue) falls below some norm or expectation and is ignored if performance equals or exceeds the norm [36]. When a performance gap is recognized, a problem is 'sensed' and articulated [5, 19]. Direction is given by a performance shortfall which specifies the magnitude of the problem to be overcome (e.g. an increase in market share or revenue).

Social motivation research draws on dis- sonance [12], equity [21] and related consistency theories. These theories show how a decision maker's beliefs, motivations and drives coax them to seek information that attends to these beliefs, motivations and drives. Decision makers look for information that bolsters their position by maintaining images of self, attitudes and the like. Equity needs entice decision makers to create the impression of an unbiased interpretation. Information is linked to the decision maker's goals. Decision makers deliberately seek ambiguous information to avoid learning about claims that would disturb a preferred interpretation.

Directions stem from overcoming the problem implied. The performance gap is not

expressed in measurable terms, such as market share or sales. Impressionistic information is encouraged in which decision makers maneuver for position and set gaps to insure that a personal interest or an interest on which the decision maker is dependent will be served [27]. Gaps take shape as subjective statements that convey needs to deal with dissatisfaction, conflict, goals, image, vision, or value that have vague and ambiguous expectations [29, 32]. Directions would be articulated as overcoming a problem described in impressionistic terms (e.g. we need to reduce conflict or increase value).

A number of research efforts have attempted to capture how decisions are made by pro- filing decision cases [e.g. 15, 29, 32, 40, 44]. The initiation of decision making is always considered in studies of this type. For example, Mintzberg et al. [25], explored 24 cases and discovered that an 'identification' phase, in which recognition and diagnosis take place, initiated decision making activity. During recognition, factual stakeholder claims were examined by decision makers to measure differences between an actual situation and some standard, creating a performance gap. Past and projected trends, standards drawn from comparable settings, top management's expec- taticns, and the like, provided concrete norms. The frequency, clarity, and consistency of gaps that exceeded a threshold created the urgency to act. Information seeking took shape formally (creation of a task force, hiring a consultant) and implicitly, with no observable steps, leading to problems being defined or opportunities recognized.

Case studies of decisions typically find that claims are interpreted with one or more quantitatively determined performance gap. When the gap exceeded a threshold, directions were set. Directions emerged as opportunities or problems. Ready-made solutions that need to be bought or copied suggested opportunities in some instance. In others, problems defined in terms of the performance gap to be closed set the direction for subsequent decision making activity.

Quinn [37] conducted studies of decision making in 10 major corporations, also dis- covering activities and processes that were related to the initiation decision making. Man- agers were observed drawing on networks of

Omega, Iiol. 21, No. 4 413

people to get information depicting the need for change. In these studies, decision makers tended to ignore information provided by traditional means, such as MIS or formal reports. Instead 'screens' were used. The screen uses subjective information depicting proliferation, exposure, overlap, lack of focus, low motivation, inconsis- tencies, and anomalies to compare a current position and a perception of future needs. This view differs from the claim interpretation steps discovered by Mintzberg e t al. [25], by calling for informal information sources and subjective measures to form performance gaps. Decision makers used the gap information to indicate what was wanted as an outcome. In some instances, stringent norms were applied to make performance shortfalls seem worthy of attention. Directions were not set as opportunities in these studies. Instead, directions were articulated as ends to be sought using objectives.

Related research finds decision makers buffeted by streams of loosely coupled problems, solutions, stakeholders and choice situations that are flowing at different rates in an organization [3, 24]. These streams meet and couple due to accidents of timing, not causal logic. Solutions seek problems, problems and solutions are looking for choice situations and decision makers respond by making choices according to their work load and how decisions bunch up, not by interpreting stakeholder claims to set directions. The choice situation becomes a 'garbage can' in which problems and solutions are dumped. Performance gaps are recognized (or problems rationalized) after something has been identified that seems useful. Stakeholder claims convey only opportunities to act, which may or may not be visionary. After the fact rationalizations, such as carefully crafted problem descriptions, are used to defend pet ideas and visions, alike. An opportunity to act accompanied by justifications that can be expressed as performance shortfalls initiates decision making.

The literature suggests that diagnosis takes place as stakeholder claims are interpreted by forming some notion of a performance gap. The perceived size of the gap provides the motivation to act and, in some instances, directions as a problem to be overcome to close the gap. In other instances, directions take shape as objectives to be met, ideas to be tested, or new norms to be met. Performance gaps can be

impressionistic, qualitative, or quantitative and directions can be set as problems to be overcome, ends to be sought, or ideas to be refined. Performance gaps can be widened by adopting more stringent norms and/or discounting current performance. Combining the diagnostics and direction setting tactics creates a number of procedures that decision makers may apply to initiate decision making, the nature of performance gap diagnostics and directions set by decision makers, as well as their relationship, needs clarification and further study to determine how each is carried out in practice and with what success.

This study seeks to determine how managers initiate organizational decision making and to evaluate the success of these procedures. In summary, the research questions to be addressed in this study are:

(1)

(2)

Determine the nature of diagnostics used by organizational decision makers, their frequency of use and success.

Determine how organizational decision makers set directions and the frequency of use and success of each type of direction.

(3) Determine whether diagnostics influence the selection and success of direction setting types.

These research questions are summarized in the theoretical model shown in Fig. 1. The factors in the model can be a main effect, an interaction effect or both.

STUDY METHODS

A database made up of 177 strategic decision cases was explored to address these questions. The use of multiple cases helps to overcome some of the single case study limitations of limited generalizability while preserving some strengths of a controlled study which allow inferences about success to be drawn [4, 45]. Each case was profiled to determine how decision making was initiated and to determine indicators of success.

Data collection for cases

The decision cases used in this research were collected from organizations across the


Table 1. Organizations, decision types and informants

Case characteristics Decision types Number Percent

Service/product 33 20 Support services = 28 17 Personnel policy b 11 7 Technologies = 37 23 Reorganizations d 6 4 Controls e 37 23 Domains f I I 6

Total 163 100

Organizational setting

Public 42 26 Private 26 16 Third-sector 95 58

Total 163 100

Decision maker (primary informants)

CEO 55 34 COO 41 25 CFO 6 4 Middle manager 61 37

Total 163 100

Secondary informants

Subordinates 146 45 Staff 158 48 Task force member 22 7

Total 326 100

*Material management, parking, telephone, records, purchasing, laboratory, etc.

bTime-off compensation, wage and salary, retirement, dismissal, etc.

CEquipment purchases, construction, space renovation, etc.

~Mergers, organizational restructuring, etc. eData processing, planning financial management,

staffing, etc. fPublic relations, marketing, etc.

United States and Canada. Table 1 provides some descriptive information about the decision cases, the organizations represented in the cases, and the informants who provided information about the decisions. The prime informant (the decision maker) was often well placed in the organization. Thirty-four percent were CEOs and nearly two-thirds were top executives

(CEOs, COOs or CFOs). The secondary informants were line managers, subordinate to the primary informant, in 45% of the cases, a staff person in 48% of the cases, and a task force member in 7% of the cases. The organizations were drawn from public, private, and third sector settings. The most frequently observed decisions in the cases involved technology and controls, closely followed by products or services. In all, seven types of decisions were included in the cases (Table 1). This diversity of important, strategic, decisions and organizations suggests that a broad range of decision practice is represented in the cases. As a result, the study's findings should be broadly descriptive of strategic decision making.

In each of these decisions, the availability and accuracy of relevant information, the degree of consensus among stakeholders, the number of participants, and the trust among key players are important considerations [15]. However, dealing with them goes beyond what can be accomplished in a single paper. The database is large enough to assure that such factors are equally represented in each of the categories explored in the study. These factors identify important topics for future work.

The cases in this study, like many reported in the literature, do not represent a random sample [e.g. 15, 25, 37, 40, 44]. A positive bias may be present in this type of research because organizations are more apt to share information about strategic decisions they believe to be particularly valuable and well done. In this research, an initial failure rate of 27% and a ultimate failure rate of 46% suggests that both good and less desirable practices have been included in the decision cases.

I Di•anostics

Performance gap determined: • Quantitatively • Qualitatively • Mixed • mpressioniaticly

I

1 Directions

Direction given as a: • Target

le Idea l e Problem le R•frame

Outcomes

Success determined by: _ [e Ado0tion - I : Decision value

Decision timeliness

1 1. Main • f f e c t 2. Interact ion e f f e c t

Fig. 1. H o w diagnostics and type o f direction influence the o u tco me o f organizat ional decisions.

Omega, Vol. 21. No. 4 415

Data were collected using both interviews and surveys. Interviews were conducted to identify the steps used to initiate decision making and the surveys were used to determine indicators of decision success. Interviews were carried out with the primary decision maker, the manager who was responsible for the decision, and others who were familiar with and had an important role in the decision. The second interview was used to corroborate the recall of the primary informant [45]. Triangulating the responses of multiple informants improves reliability [34] and increases the prospect that the responses are truthful [8]. The case descriptions that emerged from these interviews were used to uncover the steps taken to initiate decision making.

Creating the case data base. Three informants were interviewed and/or surveyed for each case. Descriptions of the steps used in each case were obtained from the decision maker and one of the other informants. Interviews were carried out to list the actions taken from claims recognition to the rejection or acceptance of the decision.

The interview procedure suggested by Denzin [8] was followed in which the inter- viewer first determines the outcome (decision adoption or rejection) and then looks for conditions that shaped this outcome. To initiate the interview, the outcome of the decision was determined. Then the decision maker was asked to recall what first captured his/her attention. Questioning proceeded from this point by asking "what happened next". For example, after informants described what captured their attention, they were asked why this seemed important and merited action. Ques- tioning proceeded in this way, taking cues from the content of a response to fashion the next query. Information gleaned from the second informant was used to corroborate the information obtained from the primary informant [45], and to triangulate [34].

A written summary of the action-taking steps gleaned from the interview was prepared by the author and then checked by the informants to insure that it accurately represented what had been said. The corroborating summary was compared to the decision maker's summary to pose questions for a follow-up interview. This interview asked more detailed questions to fill in gaps and reconcile differences [17]. Cases were discarded at this point if no clear picture

emerged that was agreeable to the informants. Three cases failed to meet these tests and were deleted from the database. A one page summary listing all of the action-taking steps was prepared for each of the remaining 174 cases.

Identifying procedure. Each summary was reviewed looking for steps taken to initiate decision making. These steps began as claims from various sources which called for action by the organization and ended when developmental activities were identified. The type of performance gap was identified by noting what had attracted the decision maker's attention. Typically this involved the nature of the claim (e.g. cost or utilization) and why the claim was thought to be important. In most instances, one type of claim, such as cost or market share, captured attention. When multiple claims were present, what appeared to be the most important was noted. The type of explanation-building recommended by Yin [45] was followed. The classification procedure moved through the summaries one at a time, first comparing actions related to diagnostics and then direction. Classification was repeated on an annual basis as cases accumulated, working back and forth between the cases and classification categories, attempting to evolve the categories [34]. Each pass found new categories which challenged existing categories. In some instances an old category was modified, in others a new one was created. These sorts were repeated several times to identify the types of diagnostics and directions identified in this paper.

For each sort, case summaries were placed with others that seemed similar. After the initial sort, a code number was placed on the back of the summary and the category was labeled. Sorting for diagnostic and direction type was repeated a number of times with all accumulated cases, to improve intrarater reliability. These repeated sorts ultimately produced per- fect agreement for the diagnostic land direction categories.

A measure of interrater reliability was constructed by asking a colleague to review a sample of the cases and assign them to categories. This sort produced 94% agreement on case-category assignment. The eleven cases that lacked classification agreement were not used in the analytical portions of the study, dropping the database to 163 cases.


Decision success. Success was determined by decision adoption, value, and timeliness. To avoid self-serving assessments, the success measures were determined by a questionnaire administered to informants other than the decision maker. To improve recall and precision the estimate-reflect-estimate (ERE) procedure was used [30]. First, the informants filled out the questionnaire. Then the informants reviewed the average ratings. If ratings seemed too low, informants were implicitly encouraged by the procedure to increase their rating and vice versa. Multiple informants and the 'ERE' procedure helped to control for 'common method variance' [35], often found in questionnaire data. When a respondent identifies values for several factors in a questionnaire these values can be correlated. Multiple respondents and ERE procedure help to reduce these corre- lations as well as improve the precision of the estimates.

'Initial adoption' was defined as the proportion of decisions that were initially put to use. Decisions were followed for 2 years to determine changes in use. Several kinds of changes were observed. First, some decisions were only adopted in part due to limited scale of use. Other decisions experienced substantial delays before adoption. Finally, some decisions were withdrawn after performance monitoring, becoming ultimate rejections, and some initially rejected decisions were ultimately put into use. A 'sustained adoption' measure was created to capture the downstream consequences of a decision. In this measure partial adoptions and ultimate rejections became failures, and ultimate acceptances adoptions. Because partial adoptions were treated as failures, the sustained adoption measure provides a more stringent test of use than initial adoption.

A measure of the decision's value was determined from informant ratings. An anchored rating scale with five anchors was used to collect these ratings. The scale anchors defined a rating of 5 as outstanding which would be assigned when a decision made a decisive contribution by providing exceptional perceived quality. Decisions with a rating of 1 were termed poor because the decision had no impact and no merit. The remaining scale points for the value measure were termed good for ratings of 4, adequate for ratings of 3, and disappointing for ratings of 2. The two informants were asked to

check anywhere along a rating scale with these anchors to reflect their views. The informants discussed and reconciled the initial average rating, as described previously. An average of the informants' final rating was used to measure decision value.

Timeliness was determined by the duration of the decision process, measured in months. Informants' recall was refined by a discussion of the initial time estimates using the ERE procedure. The average time in months from the final estimate of duration was used in the analysis. Duration ranged from 1 month to 8 years in the cases.

Analysis

Data analyses were carried out according to the assumptions of the theoretical model shown in Fig. 1. Explanatory factors can be main effects, can combine to create interaction effects or can be both an interaction and a main effect. Boal and Bryson [1] have addressed data analysis for this type of situation, showing that ANOVA is the appropriate approach to use when an explanatory relationship posits a com- bination of independent and interaction effects.

Four ANOVAs were carried out, one for each success measure (initial adoption, sustained adoption, decision value, and duration) as the dependent variable. In these analyses the diagnostics and types of direction were treated as categorical or 'dummy' variables.

The dependent variables are scaled in various ways, which call for precautions when using parametric statistical methods, such as ANOVA. The adoption measures are binary, using a nominal scale. Applying parametric tests to a binary dependent variable can produce valid results if the proportion of adoptions and rejections is less than 80/20. The 27% initial and 46% ultimate failure rates meet this test. The decision value measure has an anchored rating scale, designed to introduce interval scale properties into the ratings. To test the impact of analyzing these dependent variables with parametric methods, non-parametric tests, using Kruskal-Wallis chi-square tests, were compared to the F tests in the ANOVAs for each of these dependent variables. Similar significance levels in these tests were noted, which suggests that the more powerful parametric tests can be used. A parametric format is preferred because averages can be used to describe the success of

Omega, Vol. 21, No. 4 417

the directions and the diagnostics. A Duncan multiple range test was used to isolate differences in a dependent variable associated with the diagnostic and direction types.

DISCUSSION OF RESULTS

The analysis found that decision making was initiated using four types of diagnostics and four types of directions (see Table 2). These directions and diagnostics captured how decision makers initiated decision making in 92% of the 177 cases studied in this research. These diagnostics and directions will be described and evaluated in the discussion that follows.

Diagnostics In the cases, diagnostic tests were carried out

to interpret stakeholder claims and judge the necessity for action. A performance gap captured the perceived magnitude and nature of concerns that were prompting action. Per- formance gaps were found to be quantitative, qualitative, or mixed in 133 or 82% of the cases. Gaps expressed in quantitative terms, such as 10% decline in market share or a 20% revenue shortfall, made the nature and magnitude of the concern specific. A quantitative performance gap, for example, would call for a certain per- centage cost reduction or market share increase. Qualitative performance gaps termed costs 'too high' or market share 'too low'. A mixed performance gap had a measure of current cost or market share, but lacked cost or market share norms.

In 30, or 18%, of the cases there was no reference to performance shortfalls or expec-

Table 2. Types of procedures uncovered in the analysis

Diagnostics Direction types

Performance gap determined: Directions determined by: Quantitatively "3 , Ideas Qualitatively [ [ Problems Mixed I [ Targets lmpressionistically---J t. Reframing

16 (4 x 4) ways to initiate decision making. The 16 procedures are identified by all combinations of performance gap diagnostics and types of direction.

tations. In these cases the performance gap was termed 'impressionistic'. Decision makers identified an arena of action (e.g. we must deal with image or morale) without citing performance data that prompted the arena's selection. In these cases, decision makers appeared to be quite directive. Social motivation theories, in which the decision maker finesses a situation by citing a subjective statement of need to deal with a particular issue, seem to describe this type of diagnostic.

The influence of the four types of performance gaps on decision success is shown in Table 3. Quantitative gaps were associated with the best decision outcomes and impressionistic gaps the worst outcomes. Decisions with quantitative gaps had 75% initial adoptions, 60% sustained adoptions, and a comparatively short duration. Impressionistic gaps had 57% initial adoptions, and 33% sustained adoption, also in a short time period. Qualitative gaps and mixed gaps (known performance with unknown norms) were associated with an intermediate degree of success. Both had initial adoptions and sustained adoptions that were similar to quantitative gaps. However, qualitative and mixed gaps were associated with very long

Table 3. Decision s u c c e s s associated with directions and diagnostics

Initial adoption Sustained adoption Decision value Duration

Time to Main effect N Frequency Rate DMRT* Rate DMRT Rating b DMRT decide DMRT

Direction setting types Ideas 54 33% 67% B/C 50% B/C 4.0 B 12.0 A Problems 43 26% 57% C 39% C 3.4 C 11.4 A Targets 47 29% 71% B 60% B 3.9 B 8.6 B Reframing 19 12% 100% A 79% A 4.5 A 8.5 B Significance P ~ 0.01 P ~ 0.02 P ~< 0.078 P ~< 0.05

Diagnostics Quantitative 67 4 ! % 75% A 60% A 3.9 A 8. I B Qualitative 29 18% 70% A 55% A 4.1 A 13.9 A Mixed 37 23% 69% A 57% A 3.8 A 17. I A Impressionistic 30 18% 57% B 33% B, 3.7 A 7.9 B Significance P ~< 0.05 P g 0.05 NS P ~< 0.05

Totals 163 100% 73% 54% 3.9 10.4

'Duncan 's multiple range test (DMRT): letter codes indicate significant differences in the means, P ~< 0.05. bScale: 5 = outstanding; 4 = good; 3 = adequate; 2 = disappointing; I = poor. 9"ime measured in months.

OME 21/4---C


duration decisions, perhaps because expectations were not clear. Performance gap desig- nations had no effect on the measure of decision value.

Quantitative performance gaps may have increased adoptions because ambiguity about needs have been swept away [29]. Qualitative gaps may be prone to draw out the objections of stakeholders because performance shortfalls are less specific, which may increase decision time [12, 37]. Timely decisions with an impressionistic performance gap may stem from assumptions about the issue provoking the need to act that were incorrect, leading to low rates of adoption.

Type o f direction

Decision makers in 163 of the cases were found to use one of the four types of direction that were similar to those identified in the literature review. The remaining 14 cases fell into two categories. Three of the cases provoked arguments among the informants who could not agree on what steps were taken. These cases lack classification reliability and were dropped. In 11 cases, the decision maker seemed to switch tactics, making it difficult to settle on a classification. Each case was unique, making it imposs- ible to analyze a particular sequence of actions. The frequency of use and the success of the classified types of direction are summarized in Table 3.

Ideas. Ideas about how to respond directed decision making in 33% of the cases, making ideas the most frequently used direction. Inten- tions were derived from ideas similar to the Cohen et al. [3] 'garbage can', in which ideas are used to define problems they can solve. According to Brunsson [2], managers prefer to adapt existing ideas because they can rapidly couple the need for action, symptoms, apparent causes, and justifications to a specific way out of the dilemmas posed by an out of control situation. Ideas emerged from the decision maker's vision, and beliefs, educational activities, the literature, vendors, RFPs, joint venture opportunities, the notions of key people, and staff proposals. The decision maker then imposed the idea on the decision process. Analyses were applied to verify the idea's virtues and to determine the reactions of stakeholders.

Ideas or ready made solutions as directions have both critics and defenders. March and

Olsen [24] and Mintzberg et ai. [25] suggest that ideas are pragmatic because they should lower decision time and provide quick answers. Nutt [32], Starbuck [41] and Nadler and Hibino [26] find that this approach often produces low value. This is believed to occur because the idea requires more tailoring than the decision maker anticipates, which lowers value and increases duration. As a result, the pragmatic appeal of ideas should increase initial adoptions, but may lead to lower sustained adoptions.

Idea directions, in which a solution was imposed on the decision process, produced 'good' decisions suggesting that better decisions were possible (see Table 3). Idea decisions were not particularly timely, taking 12.0 months to carry out, raising serious questions about this type of direction's pragmatics. The idea typically required tailoring which lengthened the process. An initial adoption occurred in 67% of the decisions stemming from idea processes. The sustained adoption rate fell to 50%, suggesting that the idea's appeal eroded with time.

Problems. A problem direction was observed in 26% of the cases. In these cases a problem (concern or difficulty) was analyzed to find a way to respond. The decision maker carried out a form of problem identification. Analysis was then used to explore the nature of the problem and its distinctive features, hoping to uncover cues that suggested a remedy [5]. Developmental activities were applied to fine-tune and then implement the remedy.

Problems were found to be the least successful way to establish direction. Problem directions produced decisions with the lowest initial adoption rate, 57%, and the lowest sustained adoption rate, 39%, and the lowest value rating. 11.4 months were required to carry out problem initiated decisions compared to the idea initiated decisions. Problem initiated decisions had a value rating of between adequate and good. The cases suggest that directions articulated as problems seem to specify dysfunctions which conjure negative images and suggest looking for someone to blame [29, 43]. The prospect that stakeholders will feel that they are being held accountable for dysfunctions over which they may or may not have control may account for the low rate of initial and sustained adoptions. Problems may provide a poor vehicle to use to seek solutions because search tends to be limited to the vicinity of the


problem [20, 33]. For example, if low morale is articulated as a problem, solutions were sought to deal with increasing morale. If morale is a symptom for other concerns, an inappropriate solution would be considered, lowering the decision's value. For these reasons, problems may cause recycles which may have drawn out the decision process, increasing decision time.

Targets. Targets were used in 29°/0 of the cases, making it the second most frequently used type of direction. An objective or target was developed, indicating desired ends or aims to be sought, to guide the decision process. The target identified performance expectations such as increases in capacity, reductions in cost, or improved utilization [22, 37]. Both specific and general targets were observed. A specific target called for a specific level of performance, such as 20% increase in utilization, and a general target indicating the type of performance sought (need to improve utilization). Subsequent steps in the decision process searched for ideas, and developed and implemented these ideas.

Targets as directions are advocated by the extensive literature on objectives [e.g. 22, 26]. A target is believed to open up search which allows a wide range of solution options to be considered. Because some of these options are apt to be innovative, decision value is thought to increase [7]. Because search is open-ended, decision time is expected to increase [13]. However, the new practices that stem from innovative options may invite suspicions that could lower initial adoptions. As these concerns are allayed, the value of the decision can lead to an increased rate of sustained adoptions.

Targets were found to be the second most successful type of direction, producing the second best set of decision making results, considering each of the success measures shown in Table 3. Targets led to decisions rated as good (3.9), with a 71% rate of initial adoption, taking 8.6 months to carry out. Applying targets led to a 60% sustained adoption rate. Although not as effective as reframing, this direction clearly produced good results, better than those suggested by the literature.

Refraining. Reframing was used infrequently, being observed in only 12% of the cases. Decision makers who used this type of direction demonstrated the importance of acting by identifying and justifying new norms. These norms dramatized performance shortfalls and the

feasibility of new practices, with the potential to overcome these shortfalls. These new expectations guided the developmental steps in the decision process in which ideas were further developed and refined.

Re-norming created a sense of urgency by magnifying performance gaps [18, 37]. A new norm is applied which puts performance in an unfavorable light and underscores the need to act. This urgency should produce high initial adoptions that may endure. High ultimate adoptions seem reasonable if the new norm is wisely selected and goes unchallenged. Decision time may be drawn out somewhat by the time to identify and then justify new norms to stakeholders [37]. The literature says little about the value of approaches like reframing because past studies seldom address the impact of managerial practices on organizational capability or efficiency.

Reframing was the most successful type of direction observed in the study (Table 3). When this direction was applied, all of the decisions were implemented, in the shortest average time, with the best results. The time period was nearly 3 months shorter than that observed when idea and problem directions were applied. The rate of adoption was nearly 30% greater than the next best type of direction, setting targets. Using the anchors to interpret decision value, decisions made using reframing were rated as good. Finally, a 79% sustained rate of adoption was observed for reframing. The next best sustained rate of adoption was 60%.

Taken together these findings paint a dim picture for imposing ready made solutions and for problem analysis. These directions lead to poor results, demonstrably below that of targets or reframing. However, these less successful types of directions were observed in nearly two-thirds of the cases. Decision makers seem prone to using directions that lower decision making success.

Qualifying use and success

The interaction of the directions and diagnostics provides two types of qualifications, shown in Tables 4 and 5. Conditions of use can be determined by the frequency with which types of directions were used when each of the diagnostics were applied. A chi-square test was applied to determine the significance of this relationship. The interaction of diagnostics and


Table 4. Conditions of use

Diagnostics

Q ' P QL b Mixed ¢ Imp d Total

Directions Idea 19 ~ 12 10 13 54 Problem 18 11 9 5 43 Target 22 4 14 7 47 Refraining 8 2 4 5 19

Total 67 29 37 30 163

Diagnostics

QT QL Mixed Imp

Directions Idea 28.3% f 41.4% 27.0% 43.3% Problem 26.9*/, 37.9% 24.3% 16.7% Target 32.8% 13.8% 37.8% 23.3% Refraining 11.9°/, 6.9% 10.8% 16.7%

aQT = quantitative performance gap. bQL = qualitative performance gap. °Mixed = mixed performance gap. dlmp = impressionistic performance gap. eNumber of cases. fPercent of column total.

types of direction determine how a diagnostic and a direction work together. Differences in success for combinations of diagnostics and directions will occur if the interaction is important. The interaction term in an ANOVA for each success indicator was used to determine the significance of this relationship.

Conditions o f use. The chi-square test was significant, suggesting that the diagnostic influenced which type of direction would be used. As noted in Table 4, idea directions were more likely when qualitative and impressionistic diagnostics were applied to judge stakeholder claims. Idea directions provide a good match to impressionistic diagnostics because the idea need not be tested against expectations, which could call its use into question. Problem directions were more likely when a qualitative diagnostic was used and less likely when the

diagnostic was impressionistic. Problems seem to need a diagnostic that is neither too vague nor overly specific. Targets were more apt to be used when a quantitative diagnostic was used to judge the importance of a performance gap. The need for targets that indicate a desirable end state may explain this association. Finally, refraining was more likely after an impressionistic diagnostic had been rendered. Being overly specific about norms in a performance gap may discourage altering the norms to reframe expectations. Vague norms seem to offer decision makers more opportunities to reframe. This procedure is similar to the recommendations of organizational development in which objectives move from general to specific as the process unfolds [e.g. 18].

Conditions for success. The joint effect of diagnostics and directions on decision success is shown in Table 5. Idea directions had higher rates of adoption with quantitative performance gaps. Both mixed and qualitative gaps draw out the decision process by as much as 5 months when idea directions were used. Decision value was unaffected. Idea directions are more successful with quantitative performance gaps, but were used less often when quantitative gaps were identified. This suggests that ideas are more apt to be adopted if the decision maker can link the idea to a performance shortfall that is clearly specified. Ideas that link to specific performance shortfalls were more readily accepted.

Problem directions with qualitative gaps have a much higher rate of adoptions and better decision value, but take much more time. This suggests that a decision process geared to problem solving procedures produces better results

Table 5. The joint effect of diagnostics and types of direction on decision success

Initial adoptions Sustained adoptions

QT ~ QL b Mixed c Imp d QT QL Mixed Imp

Idea 84% 60% 60% 54% Idea 68% 42% 50% 31% Problem 53% 85% 44% 40% Problem 33% 73% 33% 0% Target 76% 50% 85% 43% Target 68% 25% 71% 28% Refraining 100% 100% 100% 100% Refraining 75% 100% 75% 80%

Value Decision time (months)

QT QL Mixed Imp QT QL Mixed Imp

Idea 4.0 4.1 3.9 Problem 3.4 4.3 2.8 Target 4.2 3.3 4.2 Refraining 4.3 5.0 4.5

'QT = quantitative performance gap. bQL = qualitative performance gap. CMixed = mixed performance gap. dImp = impressionistic performance gap.

3.8 Idea 8.9 10.5 12.7 7.8 3.0 Problem 8.5 18.0 9.4 6.0 3.1 Target 7.3 7.5 12.7 9.3 4.6 Refraining 7.5 10.0 I 1.0 8.0

Omega, VoL 21, No. 4 421

when given the latitude to deal with performance shortfalls without specific expectations. However, this latitude increases the time to make a decision by 200-300% (Table 5).

Qualitative and impressionistic performance gaps as diagnostics lowered the rate of adoptions for decisions made with targets. This suggests that specific expectations which can be derived from a quantitative performance gap helps a target directed decision be more successful. These findings differ from research in organizational development [e.g. 18] which finds that success is more apt to occur if expectations begin with a general statement of needs (e.g. we need to increase market share or revenue) that becomes more specific as the decision process unfolds.

Finally, the diagnostics that were applied had no effect on the success of reframing. Decision makers that used reframing took statements about the urgency to act and manipulated them during direction setting, making the diagnostic less important in determining success.

CONCLUSIONS

This research investigated how decision makers carry out the early, formative stages of decision making. To initiate decision making, decision makers were found to use diagnostics followed by directions. Questions pertaining to the success of these approaches, the relative importance of directions and diagnostics in decision success, and conditions and qualifications were addressed.

Diagnostics were carried out by identifying quantitative, qualitative, mixed, and impressionistic performance gaps. Performance gaps expressed as a quantitative performance shortfall were associated with timely decisions that had high adoption rates. When a performance gap was not identified, adoption rates were affected. Both initial and sustained decision adoption rates fell dramatically when impressionistic performance gaps were used. Qualitat- ive and mixed performance gaps were associated with drawn out decisions. Qualitative and mixed gaps both lacked clear norms which seemed to lengthen the decision process, leading to long duration decisions. These findings suggest that decision makers should carefully identify expectations and use these expectations to justify the need to act. Such justifications, coupled with a

clear indication of performance shortfalls will improve the prospect of adoption and of timely decisions.

Direction setting is particularly important because direction can constrain subsequent action, by prescribing boundaries or dictating the features of solutions, or liberate it by open- ing up the search for solutions. Decision makers used four types of directions with the more successful directions used infrequently and the least successful directions used in nearly two or three of the decisions. Reframing, in which the decision makers justify their actions through demonstrations, was the most successful type of direction identified in this research. Reframing, however, was used in just 12% of the cases examined in this study. Target directions state aims and allow for an open search for responses. Combining demonstrations of the need to act, in framing, with the open search for ways to respond, in a target, may produce even better results.

Idea directions were much less successful. Decision makers seem to prefer ready made solutions as directions because uncertainty about the decision can be reduced. An idea direction lowers risk for decision makers because it gives them time to anticipate surprises that could mobilize unexpected opposition. Decision makers also saw ideas as pragmatic because time and money was not spent in idea finding, just idea testing. Imposing a ready made solution on a decision process had none of these benefits. The idea direction increased decision time, lowered decision value, and reduced adoptions.

Problem directions were found to be generally ineffective, producing decisions with the poorest track record, but were frequently used. Search- ing for ways to, for example, increase utilization is much more effective than listing problems with utilization. Problem listing, however, is seductive and decision makers used this tactic in more than one-quarter of their decisions. Direc- tions that produce poor results were applied in more than two-thirds of the cases, suggesting that organizational decision makers seem prone to using ineffective approaches to set directions.

Some types of directions were more apt to follow a particular diagnostic, suggesting that a type of direction may be linked to the diagnostic steps of a decision maker. Idea directions were more likely when qualitative or impressionistic


diagnostics were applied. This suggests that decision makers pushing an idea shy away from being specific about expectations, perhaps to protect the idea from careful scrutiny. Prob- lem directions were linked with qualitative diagnostics, suggesting that a clear cut expectation discourages the use of problem solving. Targets, not surprisingly, tended to follow quantitative diagnostics and used this information to articu- late expected performance features. Reframing frequently followed impressionistic diagnostics, suggesting that decision makers prefer to gradually build norm acceptance by exposing stakeholders to evidence that describes what is possible.

The joint effect of the diagnostics and types of direction on decision success indicated the merit of formulation procedures (shown in Table 2) that initiate decision making. Although decision makers prefer to use qualitative diagnostics with idea directions, success is improved with quantitative diagnostics. Ideas are more likely to be adopted when the link to a performance shortfall can be articulated. Procedures geared to problem solving produce more adoptions with qualitative performance gaps, but this approach is very inefficient. Target directions following an impressionistic or a qualitative diagnostic had a dramatic decline in adoptions and somewhat lower decision value. Targets seem to require quantitative diagnostics to be successful. Finally, reframing works well regardless of the diagnostic that is applied. There is no need to rely on impressionistic diagnostics, as decision makers are prone to do. In the cases, some decision makers showed considerable skill at taking a diagnostic and manipulating it to create urgency and purpose in their actions. This skill, however was rare. Decision makers interested in improving the success of their decisions should consider quantitative diagnostics followed by targets, reframing followed by qualitative diagnostics or creative combinations that combine the development and specification of expectations that will guide decision making.

REFERENCES

1. Boal KB and Bryson JM (1987) Representing and testing policy implications of planning processes. Strateg. Mgmt J. g, 211-231.

2. Brunsson N (1982) The irrationality of action and action rationality: decisions, ideologies, and organizational actions. J. Mgmt Stud. 19, 29-44.

3. Cohen MD, March JP and Olsen JP (1976) A garbage can model of organizational choice. Admin. Sci. Q. 17, 1-25.

4. Cook TD and Campbell DT (1979) Quasi-experimen- tation: Design and Analysis Issues for Field Settings. Rand-McNally, Chicago, Ill.

5. Cowan DA (1990) Developing a classification structure of organizational problems: an empirical investigation. Acad. Mgmt J. 33(2), 366-390.

6. Cowan DA (1986) Developing a process model of problem recognition. Acad. Mgmt Rev. 11(4), 763-776.

7. Damanpour F (199l) Organizational innovation: a meta analysis of determinants and moderators. Acad. Mgmt J. 34(3), 555-590.

8. Denzin NK (1989) The Research Act. Prentice-Hall, Englewood Cliffs, NJ.

9. Downs A (1967) Inside Bureaucracy. Little & Brown, Boston, Mass.

10. Dutton JE and Jackson SE (1987) Categorizing strategic issues: links to organizational action. Acad. Mgmt Rev. 12, 76-90.

1 l. Dutton JE (1986) The processing of crisis and non-crisis strategic issues. J. Mgmt Stud. 23(5), 501-517.

12. Festinger L (1957) A Theory of Cognitive Dissidence. Peterson, Evanston, I11.

13. Gemunden HG and Hauschildt J (1985) Number of alternatives and efficiency in different types of management decision. Fur. J. Ops Res. 22(2), 178-190.

14. Hammond KR, McClelland GH and Mumpower J (1980) Human Judgment and Decision Making. Praeger New York.

15. Hickson D, Butler R, Gray D, Mallory G and Wilson D (1986) Top Decisions: Strategic Decision Making in Organizations. Jossey-Bass, San Francisco, Calif.

16. Hogarth R (1980) Judgement & Choice. Wiley- Interscience, New York.

17. Huber G and Power DJ (1985) Retrospective reports of strategic-level managers: guidelines for increasing their accuracy. Strateg. Mgmt J. 6, 171-180.

18. Huse EF (1975) Organizational Development and Change. West Publishing, St Paul, Minn.

19. Kiesler S and Sproull L (1982) Managerial responses to changing environments: perspectives on problem sensing from social cognition. Admin. Sci. Q. 27, 548-570.

20. Kolb DA (1983) Problem management: learning from experience. In The Executive Mind (Edited by Srivastava S), pp. 109-143. Jossey-Bass, San Francisco, Calif.

21. Lerner MJ (1970) The desire for justice and reaction to victims. In Altruism and Helping Behavior (Edited by McCauley JR and Berkowitz L), pp. 205-229. Academic Press, New York.

22. Locke EA, Latham GP and Erenz M (1988) The determinants of goal attainment. Acad. Mgmt Rev. 13, 23-39.

23. March JG and Simon HA (1958) Organizations. McGraw-Hill, New York.

24. March JG and Olsen JP (1986) Garbage cans of decision making in organizations. In Ambiguity and Command (Edited by March JG and Weissinger-Baylon R). Putman, Marshfield, Mass.

25. Mintzberg H, Raisinghani D and Tbeoret A (1976) The structure of unstructured decisions. Admin. Sci. Q. 21(2), 246-275.

26. Nadler G and Hibino S (1990) Breakthrough Thinking. Prima, Rocklin, Calif.

27. Narayanan VK and Fahey L (1982) The micro politics of strategy formulation. Acad. Mgmt Rev. 7(1), 35-44.


28. Nisbett R and Ross L (1980) Human Inference: Strategies and Shortcomings of Social Judgement. Prentice-Hall, Englewood Cliffs, NJ.

29. Nutt PC (1993) Formulation processes and tactics. Orgzn Sci. 4(2). In press.

30. Nutt PC (1992) Managing Planned Change. Macmillan, New York.

31. Nutt PC (1989) Making Tough Decisions. Jossey-Bass, San Francisco, Calif.

32. Nutt PC (1984) Types of organizational decision procession. Admin. Sci. Q. 29(3), 414-450.

33. Nutt PC (1979) Calling out and calling off the dogs: managerial diagnosis in organizations. Acad. Mgmt Rev. 4(2), 203-214.

34. Patton ME (1990) Quafitative Evaluation and Research Methods. Sage, Los Angeles, Calif.

35. Podsakoff P and Organ D (1986) Self reports in organizational research. J. Mgmt 12(4), 531-544.

36. Pounds W (1969) The process of problem finding. Ind. Mgmt Rev. Fall, 1-19.

37. Quinn JB (1981) Managing strategic change. Sloan Mgmt Rev. Spring, 19-34.

38. Schon DA (1983) The Reflective Practitioner: How

Professionals Think in Action. Basic Books, New York.

39. Schon DA (1987) Educating the Reflective Practitioner. Jossey-Bass, San Francisco, Calif.

40. Soelbcrg PO (1967) Unprogrammed decision making. Ind. Mgmt Rev. Spring, 19-29.

41. $tarbuck WH (1983) Organizations as action generators. Am. Sociol. Rev. 48, 91-102.

42. Tversky A and Kahneman D (1974) Judgment under uncertainty: heuristics and biases. Science 185, 1124-1131.

43. Volkema R (1986) Problem formulation as a purposive activity. Strateg. Mgmt J. 7(3), 267-279.

44. Witte E (1972) Field research on complex decision making process--the phase theory. Int. Stud. Mgmt Org. 56, 156-182.

45. Yin RK (1989) Case Study Research, 2nd Edn. Sage, Los Angeles Calif.

ADDRESS FOR CORRESPONDENCE: Professor PC Nutt, Depart- ment of Management Sciences, The Ohio State Univer- sity, 315B Hagerty Hall, 1775 College Road, Columbus, OH 43210-1399, USA.

Documents

Diagnostics for strategic decisions